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Canadian Taxes on Capital Gains?

  • #1
  • First Post: Aug 29, 2012 6:54am Aug 29, 2012 6:54am
So at the end of a year trading I assume your broker will send you an overview for tax purposes?

In Canada, where I live, I understand you pay 50% over capital gain unless you trade from a TFSA.

Where do I look for options to keep as much money as I can in regards to the Canadian tax system?

How do the older traders handle their taxes?
Argue for your limitations, and sure enough, they're yours. Richard Bach
  • #2
  • Aug 29, 2012 10:10am Aug 29, 2012 10:10am
Yes taxes in Canada are brutal...my family left 12 years ago due to this 50% ++

What you can do staying in canada, is set up a business and work for that company, which pays you a salary. You will be taxed at a lesser % then it all being personal income.

What is better than this, if you are able to save or keep equity in the business is setup your entity or a financial relationship offshore in a tax free domicile and pay taxes on only the funds you repatriate ('salary'). Once you are tired of Canada, and we all do tire, you can move on and continue operating elsewhere and the business will have saved itself from the taxes had it been established in Canada. All can be done legally and certainly worth it if you are able to make enough $ in trading to make it worth the stress, hours, risk etc to begin with.

If you have some interest in the topic, visit my blog exploring how to offshore your business and life, as I have done.


Cheers
Z
  • #3
  • Aug 29, 2012 10:19am Aug 29, 2012 10:19am
Quoting pipsel
So at the end of a year trading I assume your broker will send you an overview for tax purposes?

In Canada, where I live, I understand you pay 50% over capital gain unless you trade from a TFSA.

Where do I look for options to keep as much money as I can in regards to the Canadian tax system?

How do the older traders handle their taxes?
Get a proper accountant to do your taxes should this be a big part of your return. I get a CA to do mine, and it's worth every penny he costs since CRA has a lot of discretion on how they treat your trading income.

CRA decides if you get to file for capital gains rate or if your forex trading will be treated as 'business income'. They have a few different factors to consider, but basically if your trade frequency is considered 'active' and it makes up a big chunk of your total income then you'll probably be flagged.

Also, most brokers don't give anything come tax time, that's up to you to work out with your trading history. So it's easy just to file a net gain/loss at the end of the year with not much more detail, but again, if it's a big part of your income and the broker doesn't report to CRA than they are probably going to wonder about the details.

Lastly, if you're new to trading.. don't worry about taxes yet... focus first on being profitable.
FXGears.com
  • #4
  • Aug 29, 2012 10:21am Aug 29, 2012 10:21am
Also, capital gains isn't 50%... it's a small amount based on what income bracket you're in. 50% is the 'inclusion rate'... so if your capital gains rate is 15% for instance, only half of your gains are taxed (inclusion rate) so your net rate is more like 7.5%
FXGears.com
  • #5
  • Aug 29, 2012 10:23am Aug 29, 2012 10:23am
All right, good advice guys, but also questions: if I set up my account with Questrade (and unfortunately I have to) or any other trader, do they not ask for Social Insurance Numbers? I have my trading account (stocks) in the US. Do they not report to the CRA?
Argue for your limitations, and sure enough, they're yours. Richard Bach
  • #6
  • Aug 29, 2012 10:24am Aug 29, 2012 10:24am
Quoting Jack_Larkin
Also, capital gains isn't 50%... it's a small amount based on what income bracket you're in. 50% is the 'inclusion rate'... so if your capital gains rate is 15% for instance, only half of your gains are taxed (inclusion rate) so your net rate is more like 7.5%
Yeah, I should have read more closely, I was going to dig in deeper when I found all sort of ways to avoid the higher tax rate and was wondering how other did that. Stuff to look at!! I really appreciate the input!
Argue for your limitations, and sure enough, they're yours. Richard Bach
  • #7
  • Aug 29, 2012 10:38am Aug 29, 2012 10:38am
Quoting pipsel
All right, good advice guys, but also questions: if I set up my account with Questrade (and unfortunately I have to) or any other trader, do they not ask for Social Insurance Numbers? I have my trading account (stocks) in the US. Do they not report to the CRA?
QuestTrade probably reports.. but I have no idea. Their FX operations are actually done by Gain Capital (forex.com) so the back office at Quest might not report FX.

That being said, you should report everything no matter what the broker does. Saves you a lot of trouble if you ever get audited.
FXGears.com
  • #8
  • Aug 29, 2012 10:42am Aug 29, 2012 10:42am
Quoting Jack_Larkin
QuestTrade probably reports.. but I have no idea. Their FX operations are actually done by Gain Capital (forex.com) so the back office at Quest might not report FX.

That being said, you should report everything no matter what the broker does. Saves you a lot of trouble if you ever get audited.
You mean just add it as additional income? I don't mind doing that (although I do mind paying taxes haha) but if there is a way around it. I'm going to have to look into setting up a business and have them pay out a salary if that is better.
Argue for your limitations, and sure enough, they're yours. Richard Bach
  • #9
  • Aug 29, 2012 10:46am Aug 29, 2012 10:46am
Quoting pipsel
You mean just add it as additional income? I don't mind doing that (although I do mind paying taxes haha) but if there is a way around it. I'm going to have to look into setting up a business and have them pay out a salary if that is better.
What? .. no... capital gains at first as just a summary (net) of your trading.

But again, get an accountant.

If you setup a business you will be double taxed.. first as business income (corporate income tax) then again as regular income when you pay yourself (personal income tax.) There's only specific situations where trading under a corporate entity is better than personally (or even as a sole proprietor for that matter.)

So seriously.. talk to an accountant about this, as my first post said.
FXGears.com
  • #10
  • Aug 29, 2012 11:20am Aug 29, 2012 11:20am
Capital gains tax is cheapest tax in Canada. 1/2 of your gain is not taxed and the remainder is taxed on progressive personal rates. If you are in the highest tax bracket you pay around 50%

Consequently your tax on capital gains is 1/2 of 50% which is 25% for each dollar you make over 100K. If you make less than 100K than you're paying less than 25%.

There are restrictions on the assets you can trade in a TFSA & RSP accounts. I'm pretty sure you can't trade FX in a TFSA

There are also very specific rules for TFSA contribution and withdraws.

If you trade frequently and its your primary source of income then you'll most likely be carrying on a business. The gains will be ordinary income and you wouldn't get the preferential capital gains tax rate.

Luckily you could create a corporation and pay 15.50% on corporate taxable income up to 500K (lowest corporate tax rate in the G8). Ultimately this is even better.

Until you start to make over 40K there is no point incorporating in my opinion.
  • #11
  • Last Post: May 13, 2019 11:49pm May 13, 2019 11:49pm
Howdie Canadian Forex traders;

So what's the real score on taxes please, say you have a 9-5 too how are taxes filed for any gains and what about for losses; furthermore is there a need to incorporate into a business to get some tax advantages/ breaks etc, if so when would be the best time...? thanks
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